Home loan at 7.99%? Read the fine print
These deals are offered by the developer rather than your bank. This roundabout arrangement needs to be thoroughly analysed before you can agree to its terms.
To survive the slowdown in the real estate market, property developers have started to get creative with the way in which they offer lower property rates. Rather than openly admit to a slump in prices, a few builders are offering discounts in roundabout ways. The Dosti Group in Mumbai, for example, has advertised home loans at 7.99%, which should sound unbelievable, given that businesses are complaining about high interest rates. So what’s the deal here?
How it works
The Dosti Group has no tie-up with a lending institution. You can get a loan from any bank you wish. With the base rate at 10%, you can expect to pay anywhere between 10.5% and 11.5%, depending on various factors including your credit-worthiness. What the builder will do, however, is pay the difference between an EMI on your loan calculated at 10.5% and at 7.99%. Of course, this won’t be for the entire duration of the loan. With the Dosti Group, it’s for three years only. This is a pretty hefty discount. For example, on a loan of Rs40 lakh (at 10.5%, with a 15-year tenure), it’s cheaper by almost Rs3 lakh.
But a good deal must always be supported by reasonable terms and conditions. So what do you need to look for in such a situation?
What are the terms?
Such an offer makes what is probably the largest transaction in your life even more complicated. But with such a good discount, you probably won’t want to say no if it is beneficial. So what do you need to check for?
Duration: Find out for how long the builder will give you the discount. Such offers are usually for under-construction buildings, so will the builder excuse himself of his liability if work stalls?
Increase in rates: We’re expecting rates to fall, but what if they increase sometime over the next three years. Is your rate fixed at 7.99% regardless? In the case of the Dosti Group deal, they’re willing to consider only customers who’re paying a maximum of 10.5% to begin with. If their EMI’s go up, however, they’ve specified that they will pay the additional amount, too.
Is it a discount at all?: You are getting a discount on the loan, but it’s possible that you’re paying a premium for the apartment in the first place. Therefore, before you believe you’re getting a good deal, find out the going rate for flats in the area. A like-to-like comparison may not be possible, but if it’s slightly lower, it’s possible that your cheaper home loan is being paid for through a costlier flat price.